i f a f cts | gures BayernLB | GeschäftsberichtGroup financial r 2010eport f Kionzernabschlussrst quarter of 2011 Contents BayernLB . Group Financial Report – First quarter of 2011 ›› Contents f 4 oreword 6 bayernlb Group – the first quarter of 2011 at a glance 7 business performance in the first quarter of 2011 7 Earnings 2|3 9 Banking supervisory capital and ratios 9 Net assets and financial position 11 Segment reporting 15 Outlook c16 ommittees of bayernlb 18 segment definitions n ote: This Group financial report as at 31 March 2011 has been prepared with great care. The information is presented voluntarily for our customers and the public. The report does not contain all the information and data required under IAS 34 (Interim Financial Reporting) nor does it fully comply with the disclosure and valuation standards of IFRS. The results have not been audited or reviewed for correctness. BayernLB . Group Financial Report – First quarter of 2011 Foreword Ladies and Gentlemen, BayernLB has kicked off financial year 2011 by continuing its series of satisfactory quarterly results. In the first three months of the current financial year, the BayernLB Group generated higher-than-forecast earnings before taxes of EUR 149 million. Compared to the Q1 2010 figure of EUR 498 million, which was considerably inflated by a strong tailwind from the capital markets and the resulting increase in valuations, the Bank has thus posted normalised and good quality results. Earnings before taxes for the quarter were generated solely from activities with corporate, retail and real estate customers, as well as the savings banks and the public sector, which the new BayernLB has defined as its core business. The Hungarian bank levy, which was recognised through profit or loss in January for the full year, weighed on earnings to the tune of EUR 50 million. In addition, BayernLB took a EUR 20 million pro rata charge for the German bank levy, applicable from 2011, in the first quarter. As a result of the continuing reduction of non-core activities, BayernLB cut its total assets as at 31 March 2011 to EUR 303.3 billion. Year on year that equates to a decline of EUR 44.5 billion and thus almost 13 percent. In the wake of the reduction, the core capital ratio rose 0.5 percentage points since the beginning of the year to a very solid 11.7 percent. The steadily rising profitability of the new BayernLB’s defined core business areas confirms again that the Bank is on the right track with its business model as a financier of the German economy. The German economy is mainly characterised by Mittelstand companies and is heavily focused on exports. Contrary to those in other countries, German companies rely heavily on bank loans for financing, while foreign companies traditionally finance themselves to a greater extent through the capital markets. This special role of bank lending makes it especially important that the German economy be supported by a strong and capable banking system. Although Mittelstand companies have recently ventured more actively onto the capital markets, the significance of bank lending in Germany is unlikely to change in the foreseeable future. The German economy will therefore continue to need strong banks going forward which act as a reliable partner to companies and provide them with loans and comprehensive financial services, also in their inter- national activities. A glance at statistics from the German Bundesbank clearly illustrates that the Landesbanks play a fundamental role, providing more than one-fifth of all lending to German companies. At the same time, the number of strong banks focusing on large Mittelstand firms in Germany is declining. In addition, BayernLB has increasingly opened up access for its customers to the capital markets for fixed and variable income instruments in recent years. BayernLB therefore sees good financial prospects for its long-term business approach and focus on German real estate customers, large corporates and the Mittelstand, which may be served in partnership with the savings banks depending on the company’s size. It sees itself in this respect as a reflection of the German economy, which is very successful on a global scale. BayernLB . Group Financial Report – First quarter of 2011 ›› Foreword With regard to the ongoing state aid proceedings with the European Commission, BayernLB remains confident that a basic agreement will be reached before the summer break, providing the Bank with the requisite planning certainty for its continued restructuring. In the first quarter and also in recent weeks, intensive and constructive talks have taken place with the responsible offices, together with the Bank’s owners, in accordance with a fixed schedule agreed with the EU Commission. The new BayernLB will therefore pursue its strategy as a corporate financier with a clear customer focus, a solid risk profile and tight cost management going forward. The current quarterly figures once again prove that BayernLB has successfully completed the necessary turnaround and that it is making good progress even without a tailwind from the capital markets. These results were only made possible by the Bank’s customers, business partners and dedicated employees, to whom we offer our most sincere thanks for their support and trust. 4|5 Following the satisfactory first quarter of 2011, BayernLB still expects positive results for full year 2011 as well. Sincerely, Gerd Haeusler, Dr. Edgar Zoller, Jan-Christian Dreesen, CEO Deputy CEO Member of the Board of Management Marcus Kramer, Stephan Winkelmeier, Nils Niermann, Member of the Board Member of the Board Member of the Board of Management of Management of Management BayernLB . Group Financial Report – First quarter of 2011 BayernLB Group – the first quarter of 2011 at a glance Income statement (IFrS) 1 Jan – 1 Jan – Change e Ur million 31 Mar 2011 31 Mar 2010 in percent Net interest income 479 480 – 0.3 Risk provisions for the credit business – 49 – 37 32.4 Net commission income 58 50 15.1 Gains or losses on fair value measurement 60 391 – 84.7 Gains or losses on financial investments – 45 10 – Administrative expenses – 363 – 368 – 1.6 Expenses for bank levies – 70 – – Gains or losses on restructuring – 2 – 5 – 55.9 earnings before taxes 149 498 – 70.1 Balance sheet (IFrS) Change EUR billion 31 Mar 2011 31 Dec 2010 in percent Total assets 303.3 316.4 – 4.1 Credit volume 223.2 231.2 – 3.5 Equity and subordinated capital 21.0 21.6 – 2.8 Banking supervisory ratios under the German Banking act (KWG) Change 31 Mar 2011 31 Dec 2010 in percent/pp Core capital (EUR billion) 13.7 13.9 – 1.4 Own funds (EUR billion) 18.8 19.2 – 1.8 Risk positions under the solvency ordinance (EUR billion) 117.1 123.9 – 5.5 Core capital ratio 11.7% 11.2% 0.5 pp1 Total capital ratio 16.1% 15.5% 0.6 pp1 e mployees Change 31 Mar 2011 31 Dec 2010 in percent Number of employees 10,714 10,853 – 1.3 Current ratings Long-term Short-term Pfandbriefs2 Fitch Ratings A+ F1+ AAA Moody’s Investors Service A1 Prime-1 Aaa 1 Percentage points 2 Applies to public-sector Pfandbriefs and mortgage Pfandbriefs BayernLB . Group Financial Report – First quarter of 2011 ›› BayernLB Group – the first quarter of 2011 at a glance · Business performance in the first quarter of 2011 Business performance in the first quarter of 2011 e arnings 1 Jan – 1 Jan – Change EUR million 31 Mar 2011 31 Mar 2010 in percent Net interest income 479 480 – 0.3 Risk provisions for the credit business – 49 – 37 32.4 net interest income after risk provisions 430 444 – 3.0 Net commission income 58 50 15.1 Gains or losses on fair value measurement 60 391 – 84.7 Gains or losses on hedge accounting 36 – 10 – Gains or losses on financial investments – 45 10 – Income from interests in companies valued at equity 8 – 1 – Administrative expenses – 363 – 368 – 1.6 Expenses for bank levies – 70 – – Other income and expenses 37 – 12 – 6|7 Gains or losses on restructuring – 2 – 5 – 55.9 earnings before taxes 149 498 – 70.1 Rounding differences may occur in the tables. The BayernLB Group posted satisfactory earnings before taxes of EUR 149 million in the first quarter of 2011. While the unusually high earnings in the year-before period were unusually high due to the positive performance of capital markets, which was reflected in the very high results from gains or losses on fair value measurement, the first quarter of 2011 was marked by stabilisa- tion and expansion of sustainable sources of earnings from customer-related business. The Hungarian bank levy, which was recognised through profit or loss in January 2011 for the full year, weighed on earnings to the tune of EUR 50 million. Proper pro rata recognition would have resulted in around EUR 38 million more in earnings before taxes, thus amounting to around EUR 187 million. The German bank levy charged for the first time weighed on results with a further EUR 20 million. Adjusted for the contribution to the year-before period’s earnings of Landesbank Saar (SaarLB), which was deconsolidated on 30 June 2010, net interest income rose 6.4 percent to EUR 479 million1. The main contribution here came from Deutsche Kreditbank AG (DKB), whose strong retail fund- ing led to a considerable improvement in net interest income. Risk provisions for the credit business totalled EUR – 49 million (Q1 2010: EUR – 37 million). It must be taken into account here that due to the value adjustment period for the preceding annual financial statements, credit risk provisions in the first quarter are usually below the pro rata amount for the full year.